A new Dutch term assurance product - Elaine Turner Innovation or back to basics? - Institute and Faculty of Actuaries
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A new Dutch term assurance product
Innovation or back to basics?
Elaine Turner
21 May 2018
“Good morning, have you heard, we are stopping
selling fixed premium term assurance. Our new
product will have a risk based premium which
increases with age. What do you think?”
21 May 2018
Agenda Dutch market specifics for Term Assurance Explanation of the Achmea Term Assurance product Distribution Benefits & Challenges of the Achmea product Discussion, Questions and Comments 21 May 2018 3
Dutch market specifics
• Term Assurance – Dutch v UK
• Drivers of term assurance sales in Dutch market
• Game changers
• Market volumes
21 May 2018
Term assurance
If the insured dies …
…..within a specified amount of time……
…the beneficiary receives a benefit.
21 May 2018 5
Similarities between Dutch and UK market
For the basic product: Dutch term assurance = UK term assurance
Dutch market historically:
• Endowment assurances were used to finance house purchases
• Products combining savings and protection products developed e.g. Unit
linked funds with shortfall covered by insurance
• Separate term assurances were available
But there are some differences……
21 May 2018 6
Drivers of term assurance sales in Dutch market
• First purchase of a house
• Re-mortgaging of house / moving house
• Protection of spouse and children:
– To cover financial responsibilities – rent, divorce alimony, other debts
– Help with immediate costs – childcare, time away from work
– To cover children’s further education costs
– Focus on rental market
• Business loans (bancassurance)
• Key man
But mainly related to house purchase.
To understand the term assurance market need to
understand the house purchase environment.
21 May 2018 7
Game changers – Distribution & Sales
Financial crisis Housing market dries up No new mortgages
Commission Advice costs Execution only
21 May 2018 8
Game changers – Product
Bank advantage on
Low interest rate Endowments stop
savings products
Bad publicity Customer protection Transparent products
21 May 2018 9Annual housing sales volumes - Netherlands
• In 2017 242,000 existing
houses were sold
• Excludes new houses
• Sharp decrease following the
2008 financial crisis with a
slow recovery
• In Netherlands about 4.4
million owner-occupied homes
• Turn over rate of 5.5%
21 May 2018 10Sales volumes
• In 2017 over 200,000 term
assurances sold in the
Netherlands
• Approximately 1.2% of the
population purchased in 2017
• Long term monthly sales between
15,000 and 20,000 per month
• Has not seen as steep increase
as housing sales after 2013
Based on figures from CVS (Centrum voor Verzekeringsstatistieks)
21 May 2018 11Explanation of Achmea term assurance product • Key product features • Guaranteed increasing premium rate - explanation to clients • Underwriting and use of technology • Dutch smoking approach 21 May 2018
Achmea Overlijdensrisicoverzekering (ORV)
key features Term assurance
Standard features Differentiating features
• Fixed benefit or decreasing (by annuity or • No joint policies
straight line) benefit
• Premiums increase monthly
• Age at inception 15 to 68, Maximum end age
• Premiums guaranteed for lifetime of
75
product
• Minimum term 1 year, Maximum term 54
• Can cancel at any time
years
• No reserve (pot) built up
• Sum assured from €10,000 to € 2,000,000
• On lapse no payment of reserve or paid
• Simple – no waiver of premium, critical
up policy
illness, terminal illness or children’s benefit
options
21 May 2018 13Does the policyholder understand?
Various approaches
• Discussions with customer groups as part of
product design
• Make it clear from the start – premium increases
each month, no surprises
• Use technology to explain in appealing ways
• Visuals and graphs – not just text
• Interactive tools for providing quote
But the chance that you die in the beginning
Example is smaller because you are younger
• Infographic (Rabobank website)
21 May 2018 14Interactive quotation tools & graphics
Rabobank website:
Premium Amount
Level SA or type of decrease
Average
Monthly
monthly
premium
premium
Term = 25 years Duration
First premium
Age at end date = 70 years 3 months
21 May 2018 15Guaranteed increasing monthly premium
• Interactive quote tool on Centraal Beheer website:
https://www.centraalbeheer.nl/verzekeringen/overlijdensrisicoverzekering/Paginas/premie-berekenen.aspx#/premie
• Download a pdf of monthly premiums and sum assured
21 May 2018 16Guaranteed increasing monthly premium
Simple concept
• People age, older people are more likely to die, thus as you get older premiums increase
But….
• Bespoke tools require that the customer interacts directly
• Works best with dedicated sales channels:
– Bancassurance
– Existing client base
– Internet searches
21 May 2018 17Calculate premium
Underwriting and technology
Complete details
• Inclusive approach – in particular for dangerous occupations or
sports Receive SMS with
link
• One system for all sales channels
• In house technology Client completes
questionnaire
• Y/N questions with additional questions/free text boxes depending
on responses Real time review
• Machine learning
• Medical examination only allowed when sum assured > € 268,125 Clean acceptance,
premium uplift or
(Industry protocol) call back
• Model questions (gezondheidverklaring) from the Verbond van
Verzekering (Dutch Insurance Association)
21 May 2018 18The Dutch approach – smoking
Smoking means smoking substances with tobacco (cigarettes, cigars, pipe) or weed.
With smoking we also mean the use of other substances with nicotine.
For example chewing gum, patches, tablets, inhalers and electronic cigarettes.
• Non-smoker if not smoked during the previous 2 years
• If a smoker stop smoking can send a declaration after 2 years of not smoking and premium rates
reduce to non-smoker level
• Non-smoker declaration must received before 45th birthday
• If begin smoking obliged to inform insurer about new status
• If a smoker who has been paying non-smoker premium dies they receive 50% of the sum insured
• When calculating the age based premiums the adjustments for smoking status are based on relative
risk for that specific age
21 May 2018 19Distribution • One product many channels • Achmea market share • Comparison websites 21 May 2018
One product, many brands and channels
• One team for product development and administration
• One administration system and IT environment
• One product, same product conditions, same base pricing
• Execution only or advised sale
• 4 brands with distinct marketing images:
– Interpolis (Bancassurance via Rabobank)
– Centraal Beheer (direct, worksite, internet)
– FBTO (direct – internet only)
– Woonfonds (financial advisors)
• Price to policyholder varies by brand due to administration costs (initial and ongoing)
• Advice costs are paid separately by policyholder, commission is not allowed
21 May 2018 21Achmea sales volumes and market share
• Achmea’s leading channel is bancassurance = Interpolis 2017 market share: % of new TA policies
administered
Interpolis 21.7%
Monthly sales volumes Centraal Beheer 2.1%
30,000 FBTO 0.7%
Woonfonds 0.7%
25,000
Total 25.2%
20,000
15,000 Market
Interpolis
10,000
Based on figures from CVS (Centrum
5,000 voor Verzekeringsstatistieks)
-
2012 2013 2014 2015 2016 2017
21 May 2018 22Comparison websites
• Tend to focus on price
• Commodity product, no room to explain the
specifics
• First mover challenge – liaise with the
comparison websites
• No longer the only product with age linked
premiums
• Comparison website now allows to select on
variable or fixed premiums
• Products ordered based on total premiums
paid – with a warning in the extra information
that the value of money changes over time
21 May 2018 23
Extract from www.independer.nl for € 250,000 level TA, 45 years old, 25 years termComparison websites - Example
• Variable premiums give extra comparison challenges
Similar first
premium
Very different
total premium
amount
21 May 2018 24
Extracts from www.independer.nl for € 250,000 level TA, 45 years old, 25 years termBenefits & Challenges • Insurer perspective • Policyholder perspective 21 May 2018
Benefits and Challenges
Insurer perspective Policyholder perspective
Benefits • No reserves • Pay for what you get
• Removes lapse risk • Transparent
• Removes price sensitivity to discount rate • Portable - no loss if stop
• No need to reprice on interest rate changes
Challenges • Explain the product • Long term affordability
• Fair comparison with fixed premium TA • No benefit in premium from expected
lapses
• Complex administration of premium charging
• No paid up policy or reserve return
• Updated premium rates - should these also
apply to old business?
• Higher lapses?
21 May 2018 26Innovation?
Back to basics?
Did the product disrupt the market?
21 May 2018Questions Comments Expressions of individual views by members of the Institute and Faculty of Actuaries and its staff are encouraged. The views expressed in this presentation are those of the presenter. 21 May 2018 28
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